Why Artists Should Stop Chasing Spotify's Pennies And Focus On Top Fans

Nary a day goes by when we don’t hear from an artist with a variant on the following: “My song was streamed on Spotify/Pandora [insert "large" number here], and I was only paid [insert "small" number here].”

These stories make for good fodder in that they highlight a perceived inequity with respect to an artist’s work being devalued. They have all the right elements: there’s the David and Goliath trope; the not-so-subtle dystopian inference that our society is going to hell because it’s over-valuing corporate greed to the detriment of artistry; and the fact that, because it’s music – something that plays some sort of role (however large or small) in most peoples’ lives, we’re all vaguely complicit in these inequities.

As is so often the case with stories that seem to suck just about everyone into their vortex, they often are full of sound and fury, but signify nothing. Such is the case with the hubbub around payments (or lack thereof) from Spotify, et al. to artists.

This is not to say that what Spotify and other music services is or isn’t paying artist is right or just. Rather, it’s irrelevant. In fact, not only does this debate have zero bearing on artists (not to mention consumers), but by its very nature it serves as a distraction with respect to what artists should really be focusing on.

Certainly, the payments to artists from streaming services are immaterial to the artists. This does not mean that these services aren’t paying out some, prima facie, big numbers to certain artists. It’s just that even if, for instance, Pandora pays out a million dollars to Jay Z, this amount, when compared to the money Jay Z earns from other ventures, is immaterial. It works the same way for a new artist who gets a payment of $0.25 from Spotify; it’s immaterial when compared to what they got paid for playing a club gig or selling a t-shirt. Same deal for mid-level and heritage artists.

Is this “right?” Hard to say. Right now customers are the prime beneficiaries of this windfall of historically deeply discounted music. Any song ever recorded for – at most – around $10/month is hard to argue with, and even harder to change; customers have now been conditioned that this is what music costs, and, the vast majority of customers are not going to ever pay more for it. The services who are now forced to price their subscriptions at this price point argue that if they raise their payments to artists they will go out of business; Pandora actually intimates that if they don’t pay less to artists they will go out of business, because 50% of their revenue is going to artists royalties. Of course, rather than reducing artist payments to lower this percentage, the other way to reduce this percentage is to increase revenue! But, again, Pandora doesn’t want to do this because they fear customer revolt if, for example, they run more ads per hour to increase revenue.

All of this is of course outside the artists’ hands. No matter how many Facebook FB +0.51%posts artists make discussing the real or perceived inequities regarding payments the chances of the rates going up are slim, and, again, even if they do the payments will still be immaterial.

Artists must therefore recalibrate not only their expectations with respect to payments (they should expect nothing), but also their approach generally. Here’s how.

We can loosely lump music consumers into three basic clumps: Casual Fans, Active Fans, and Passionate Fans. This grouping nicely corresponds with the Customer Journey as created by the auto industry (but applicable to pretty much everything) that states that customers follow the same path: Awareness, Consideration, Trial, Purchase, and Re-Purchase.

Overlapping these two we see that the streaming services fall neatly into this trajectory. For instance, The first stages of the Customer Journey, Awareness and Consideration, line up well with the Casual music listener. That is, someone who doesn’t know what they want, but has a felt need for music might turn to a non-interactive streaming service such as Pandora, Songza, or a web-radio station. These non-interactive streaming services allow for Casual Fans to hear an array of music.

Given that the core competency of Pandora is to customize a listening experience to your likes, it stands to reason that the Casual Fan could discover something they like that moves them to the Active Fan level. This stage aligns with the Consideration/Trail stage of the customer journey. Here the customer might turn to Spotify or one of the other interactive streaming services (the difference between non-interactive and interactive services is that interactive services allow you to select specific tracks, and listen to them repeatedly; non-interactive services do not allow this). The customer has discovered something in the casual stage and is now considering it/trying it by actively selecting it on Spotify to listen to it a number of times to see if there is resonance.

While the payout to artists increases exponentially when a customer goes from causally discovering their music on a non-interactive source to actively selecting and playing it on interactive service, the payout remains immaterial.

It’s only when the customer, after truly resonating with an artist, moves from an Active Fan to a Passionate Fan that the artist stands a chance of making money. This is because this Passionate Fan aligns with the Purchase and (more importantly) RePurchase stage of the customer journey. Here the artist can finally unshackle from the contingency of payments from the streaming services, and instead make material money via things like sale of tickets, vinyl, merchandise, membership/subscription modes to their own Site for exclusive content, direct sales from their website of downloads of non-album tracks (live performances, demos), etc.

These items (recordings of live shows, tickets, etc.) are only of interest to Passionate Fans, of course, and thus the importance of using these services like Spotify and Pandora for all their worth to drive more potential Passionate Fans into the funnel in order for the percentage of Passionate Fans to grow.

As seen as a potential catalyst to herd more casual and active fans — fans who may become Passionate Fans — into this funnel, these services take on a real value. This valuefar exceeds any direct financial payment (whether that number goes up or down 10%). To this end, the artists must learn to use these services and benefit them in the same way the artists are being used by and benefiting these services.